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Sectoral Equity Returns in Europe: An Empirical Study on Reducing Portfolio Risk
University West, Department of Economics and IT, Divison of Law, Economics, Statistics and Politics.
2017 (English)Independent thesis Advanced level (degree of Master (One Year)), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

This thesis examines the performances of 16 key equity sectors in the European market. Hereby, the daily sectoral equity indices are used for the period 2000-2017. Different performance measures have been used, including the Sharpe-ratio and Jensen’s Alpha. In addition, the cross-sectoral and cross-countries return correlations have been examined. Furthermore, calendar anomalies have been researched and portfolio optimization techniques have been used to illustrate different diversification scenarios. Four structural models have been tested and the classical linear regression model with the ordinary least squares technique has been used to run regressions, both on the aggregated Europe equity index as well as the sectors individually. This research finds that Consumer Staples/Chemicals have on average the highest risk-to-return ratio and IT/Banks the lowest. Moreover, Health Care and Biotechnology & Pharmaceuticals, Financials and Banks were the most correlated while Banks and Leisure, Materials and Leisure were the least correlated sectors. This research also finds that the aggregated European equity index shows a higher correlation with the sectors Banks, Financials and Industrials than the aggregated US and aggregated World indices do. Finally, it is shown that the average return correlations across sectoral indices are lower than the average return correlations across developed countries indices within the European equity market.

Place, publisher, year, edition, pages
2017. , 30 p.
Keyword [en]
Diversification, Equity Market Integration, European Equity Markets Portfolio Management, Seasonality Effects, Sectoral Analysis
National Category
Economics
Identifiers
URN: urn:nbn:se:hv:diva-11490Local ID: EXF800OAI: oai:DiVA.org:hv-11490DiVA: diva2:1141131
Subject / course
Nationalekonomi
Educational program
Mäklarekonom
Supervisors
Examiners
Available from: 2017-09-19 Created: 2017-09-14 Last updated: 2017-09-19Bibliographically approved

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